We show that the vacuolar protein sorting gene VPS44 is identical to NHX1, a gene that encodes a sodium/proton exchanger. The Saccharomyces cerevisiae protein Nhx1p shows high homology to mammalian sodium/proton exchangers of the NHE family. Nhx1p is thought to transport sodium ions into the prevacuole compartment in exchange for protons. Pulse-chase experiments show that approximately 35% of the newly synthesized soluble vacuolar protein carboxypeptidase Y is missorted in nhx1 delta cells, and is secreted from the cell. nhx1 delta cells accumulate late Golgi, prevacuole, and lysosome markers in an aberrant structure next to the vacuole, and late Golgi proteins are proteolytically cleaved more rapidly than in wild-type cells. Our results show that efficient transport out of the prevacuolar compartment requires Nhx1p, and that nhx1 delta cells exhibit phenotypes characteristic of the "class E" group of vps mutants. In addition, we show that Nhx1p is required for protein trafficking even in the absence of the vacuolar ATPase. Our analysis of Nhx1p provides the first evidence that a sodium/proton exchange protein is important for correct protein sorting, and that intraorganellar ion balance may be important for endosomal function in yeast.